Eurozone growth slows to a halt

Written By Unknown on Kamis, 14 Agustus 2014 | 18.19

14 August 2014 Last updated at 11:37

Growth in the eurozone as a whole flatlined in the second quarter, according to official estimates released on Thursday.

The eurozone saw 0.0% growth compared with the first quarter, according to Eurostat figures.

The economic bloc's two largest economies, France and Germany, both performed worse than expected.

Germany's Federal Statistics Office said the economy was "losing momentum".

And official figures show the French economy saw no growth in the quarter.

Italy, the eurozone's third largest economy, fell back into recession.

However, Portugal jumped from a 0.6% contraction in the first quarter to a 0.6% expansion in the second.

And Spain continued to recover, with 0.6% growth.

Analysis

BBC Business reporter, Theo Leggett:

Last week, the president of the European Central Bank (ECB), Mario Draghi, described Europe's recovery as "weak, fragile and uneven". These figures certainly bear that out.

While the fall in output in Germany is likely to produce the bigger headlines, the most serious problems lie elsewhere.

That isn't to say Germany doesn't face challenges; its exports have already been affected by a slowdown in Russia, for example, while the crisis in Ukraine appears to be weighing down on business confidence.

There is also the question of how much impact sanctions will have.

However, economists believe Germany's economy remains structurally sound - and many of the factors currently limiting growth are short term.

Much greater concerns hang over France, the region's second biggest economy, which has recorded zero growth for the second quarter in succession, and Italy, which has fallen into recession again.

The evidence suggests that the eurozone recovery is faltering, or even going into reverse.

That is likely to increase the pressure on the ECB to follow other central banks by introducing a programme of quantitative easing.

'Significant setback'

German GDP contracted by 0.2% in the three months to the end of June, figures show, after growing by 0.7% in the first quarter.

The German Federal Statistics Office said that extremely mild weather at the beginning of the year had an effect on growth.

Christian Schulz, senior economist at Berenberg bank, said the contraction in the German economy was a "significant setback".

"It seems to be caused largely by weather," he said. "The mild winter this year means the usual spring recovery in construction didn't happen."

The crisis in Ukraine may also have had an impact on economic confidence in the country, he said.

"Putin has an impact on confidence, and thus, investment, and also a little bit on exports," Mr Schulz said.

While it is unlikely that economic sanctions on agricultural imports by Russia will have a direct effect on Germany in the third quarter, confidence may be knocked by instability in the region, he said.

German 10-year bond yields, the benchmark for euro zone borrowing costs, were 1 basis point down at 1.022% on Thursday morning, an all-time low.

France was suffering from a "long-term weakness" of lack of reform and underinvestment by business, he added.

French deficit

France has now seen two quarters of zero growth. The lack of growth was weaker than many economists had expected.

France's statistics agency, INSEE, said that GDP had "remained steady" in the second quarter.

It said that manufacturing output decreased again after a "high number of potential extra days off this quarter due to midweek public holidays."

French finance minister Michel Sapin said that France was unlikely to meet its deficit target for this year.

"The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending," Sapin wrote in newspaper Le Monde.

Mr Sapin said that France had revised its annual growth forecast for 2014 down to 0.5% from a previous 1.0% estimate.


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